Insurer files lawsuit against Bank of America

The Countrywide unit of the Bank of America Corp is in hot water following a lawsuit filed against them by the MBIA Inc, an insurer. The lawsuit aims to encourage the securities regulators to examine how Bank of America Corp’s Countrywide unit conducts its mortgage repurchases.

According to the documents filed in support of the lawsuit, the Securities and Exchange Commission have been called to investigate the bank’s representations and warranties process when the mortgages are being sold. It was found out that the bank made promises in line with the loans and accommodate reserves for mortgage repurchases too.

SEC Reviews How Mortgage Repurchases are Made

For mortgage repurchases to be made, investors would first have to ask banks to buy back mortgages if it has been determined that the banks are at fault. Reasons such as poor underwriting, documentation errors and the insufficient verification of income should be enough to force a bank to buy back mortgages.

This process has resulted in billions of dollars of losses that the Bank of America would have to put up with today. Add to that would be the billions of dollars of losses that were sold to Fannie Mae and Freddie Mac in 2008. However, $16.3 billion reserves have been documented for future claims.

SEC Finds Several Faults on Bank of America Transactions

The SEC, though found faults in the transactions Bank of America entered, has not sued the bank for recent conducts. The only penalty that ever took place so far was the imposition of a $22.5 million penalty on the Chief Executive Officer of Countrywide, Angelo Mozilo. The fine was for the supposed disclosures that were made during the height of the subprime mortgage crisis.

The Bank of America has been transparent before when it made a statement confirming that subpoenas have been sent to them, together with requests for information. These have come from regulators of mortgage-backed securities. However, the bank has made it clear that the requests for information, threatened legal proceedings, and investigations are normal parts of the bank’s processes.

In response to the lawsuit filed by MBIA Inc, the Bank of America also filed a case against MBIA for its efforts of trying to buy the insurer’s bonds.

Alternate Refinancing Methods

While the banks and the insurers are battling with their conflicts, consumers are forced to look for other means to have their homes refinanced. Some would seek help from online bad credit loan companies who are willing to provide them with the needed money in order to keep their homes.

Bad credit loan companies skip the usual requirement of a comprehensive credit check and an investigation of the applicant’s personal and financial information. Hence, the money is released quite fast.

The housing boom is a big help to the economy if the number of purchases is to be based. But digging deeper into the operations behind the housing boom would unveil conflicts between the bank or the financing authority and the insurer or the underwriter. The SEC would have many long investigations to do in the future in the wake of the housing boom.